In the age of Instagram, influencers, and indie brand innovation, competing as a heritage beauty brand in today’s landscape is not for the faint of heart. It requires respect for history with the ability to navigate evolution and revolution, finding the right balance that keeps the DNA of the brand intact while remaining relevant and competitive. In many respects, it’s easier to start an indie brand with a clean slate in today’s beauty environment than running a heritage brand.
Heritage beauty brands don’t have the cool factor of heritage brands in other categories. Running these businesses is an art form that blends business acumen and branding skill executed with unbridled passion and vision. Charles Denton has a unique track record and love for these businesses. He was at the helm of Molton Brown for 15 years, eventually selling the business to Kao in 2005 and now leading the evolution of Erno Laszlo for the past 7 years.
As part one of a three-part series, we talked to Denton about his affinity for heritage beauty brands, the inherited challenges in the acquisition of Erno Lazlo, the hard decisions, and how the right team has turned a declining business into a brand that is relevant and on a path to double in size every 2-3 years.
What was it about the Erno Laszlo business that compelled you to acquire it in 2011 with private equity backing?
The short answer is the story behind the brand. When you look at the extraordinary heritage stretching back 90 years, it ticks all the boxes. Leading with innovation, empowering women, endorsed by Hollywood, iconic products, and so on. It’s an authentic brand that has evolved over time without losing its DNA. I guessed, at the time, that these values would appeal to a new consumer if we could find the right tone of voice. But there were many barriers preventing the brand from growing. Some were self-imposed rules, which were flying in the face of how modern consumers wanted to shop. For example we insisted on prescribing rituals at a time when many people were self-curating best-in-class products. We were a doctor brand treating our clients like patients when they were looking for more of a leisure experience. We had a huge and complicated range, which was built around skin type and results, when consumers wanted to have a lifestyle experience. I believed that we could take the wonderful history behind Erno Laszlo and reimagine the offering and tone of voice to engage with a whole new group of consumers. In summary, our task was to move us away from being “the authority in skincare” to more of a “trusted and inspiring partner for life.”
You spent 15 years growing the Molton Brown business, eventually selling it to Kao in 2005, and now you’ve focused Erno Laszlo for the past 7 years. What is it about heritage brands that interests you?
I like the idea of continuing a legacy, of taking up the standard and driving a brand forward to deliver on the vision of the founders. The intellectual challenge is very inspiring. In many ways its more complicated than starting a new business, as you’re performing a kind of brand surgery, which must take into account every part of the living, breathing entity. From its people and loyal customers through to the positioning and products, everything must be weighed and either retained or discarded. Heritage brands by their nature are the vision of some founder who set out to accomplish something, and if it was noble and important, then it remains unfinished business that deserves attention. I also have that British attraction to underdogs.
What are some of the unique challenges for heritage beauty brands in today’s beauty landscape?
The speed of change and overcoming an aversion to risk are the most difficult challenges facing heritage brands, especially those residing in large corporations. I’m sure there is no shortage of talented people who can imagine a new future for these amazing brands, but the environments aren’t always conducive to this type of thinking. In order to reinvent itself, a heritage brand may have to strip down to the core and rebuild its culture around being nimble, creative, and innovative without a fear of failure. Without this mindset it’s very hard to take a different path forward. Innovation by definition means doing something you haven’t done before. This is a problem for many organizations, not just in beauty. But in our industry the challenge facing heritage brands is even more evident. The gatekeepers are no longer all powerful, and inspiration for new ideas is coming from all directions. It’s a melting pot of science, fashion, art, film, travel, food, and tech. Anything and everything goes, the more unique and creative the better. To steer a brand into this new world can feel like visiting a planet where everyone is speaking a different language. And you can’t fake it—you must live it to appreciate it. And all the while you have to keep reminding yourself of the importance of staying true to your values and DNA. It can be daunting heading into the unknown, especially for investors. Brands don’t behave like they used to, it’s not so easy to put a slide rule over them to assess potential or value. Today it’s about measuring the soft skills like creativity, curiosity, and spontaneity. And embedding these into your culture isn’t so easy.
What were some of the specific challenges with the Erno Laszlo brand when you took it over?
The half-empty view was that we were in a declining channel with an aging consumer base, which was not growing because new customers were shopping elsewhere. The hardest exercise was reimagining our brand while trying to avoid alienating the very people who have made us successful. What you needed is a burning platform, so there’s no question that things must change. This way you can win over all your stakeholders because it becomes a matter of survival. In the first two years we didn’t see the urgency for rapid and fundamental change, but as the market became increasingly disrupted it became clear that we needed more drastic measures than changing the logo. This was when we pivoted as a brand and thereafter as a business. We cut our range by two-thirds to 50 SKUs, focused on building franchises around our five iconic products, reworked the packaging and pricing architecture to make the range more accessible, closed the majority of our department store counters, recruited an entirely new team, concentrated on growing our online business, and pushed into international markets. It was a very painful period and we had lots of pushback. I hadn’t anticipated how pigeonholed we were in the minds of the buyers and how much work it would take to change opinions. At the same time we also parted ways with our investor. Looking back, everyone had expected a faster turnaround, and it’s not easy to keep plowing in cash based upon belief alone, but we didn’t have much more to rely upon. Then in 2016 the green shoots started to appear. It was a very special moment for my team—all their hard work, singled-minded determination, and commitment was starting to yield results. We were finally being vindicated and it felt wonderful.
In a beauty landscape where clean formulations, transparency, and sustainability are quickly becoming the new normal, how have you addressed this shift and remained competitive?
In 2007, well before my time, we set out our own “clean list” and have been formulating products using this benchmark ever since. More recently we have adopted the stricter guidelines as set out by Sephora, which makes it much easier to communicate where we stand. It is not so simple to explain your position as it pertains to these issues. There are many different claims being made by brands—some are transparent, while others are quite misleading. It’s very helpful to have an international retailer like Sephora take a stance and create a standard against which we can all be measured. The majority of our range is in compliance with their guidelines, and by 2020 the entire line will be. I strongly believe that for any brand to thrive today they need to be more human, with a clear point of view and values that are not governed entirely by the bottom line. This is best achieved by placing the consumer at the heart of your business. But in doing so you must open up, accept that you may have made mistakes, and be prepared to change. Becoming entirely clean and sustainable within the next two years may impact us financially in the short term, but it’s an investment, both in our future as a business and in the generations to come. These are the type of decisions you face when stewarding a heritage brand. You have to have a long-term view to keep a brand relevant.
When you acquired Erno Laszlo, it was primarily a department store brand in North America. How have you diversified the distribution?
We believe in placing the product where the consumer wants to shop. Today over 60% of our global revenues are derived online, and we have an even split of department store and independent store accounts with two-thirds of our revenue now generated overseas. The most important consideration is how to govern the experience in each channel. Aligning and agreeing on best practice with our partners can at times be challenging—this is one of the reasons why we have taken the decision to move back into the physical space. Having four walls within which you can curate and deliver exactly what your consumer is looking for is very important. Especially for a brand like ours with the majority of revenues weighted towards online. We have so much to offer in the way of experiences that more and more we need environments where these can be delivered the way our consumers want. We regularly conduct research, and the most regular request is for a space that will comfort, educate, and make them feel special. We’re far less concerned about the sales and much more focused on the type of relationships we’re developing.
You built quite a sophisticated Asian distribution strategy. Why did you decide to focus on Asia rather than Europe?
Shortly after acquiring the brand I toured our counters in North America and was blown away by the buzz around the brand in Holt Renfrew, Vancouver. The team explained to me that we had a core following of Asian clients who had been using the brand for a generation and that they were now recommending Erno Laszlo to their friends and family. I asked why we were doing so well with these particular consumers, and the response was universal: “Because they get great results with their rituals.” So we decided to target this market first in Hong Kong and then Taiwan. As the word spread and the noise increased, some of our products took on legendary status with their own nicknames. Then as social media came into our lives the momentum increased, as people could share their positive stories about how the black soap had cleared up their acne scars or how they we were using the famous wedding mask. That’s when we entered China through cross-border platforms. Our Asia market strategy evolved out of observing our consumer behavior, and then trying to reach them locally—it wasn’t really that clever.
Why does the brand have such resonance with Asian consumers?
They love that they get great results. This is the most important consideration. In Asia more than anywhere else our consumers are not shy (contrary to popular belief) to call out poor performance or a product failure. So we concentrate on ensuring our products really deliver what they promise. We also avoid taking them for granted. While we’re clearly a New York brand and proud to be so, we don’t always know best—we have much to learn from our fans and have no hesitation in changing how we behave if it’s inappropriate. We also formulate and curate our products around the individual, which I think is respected and valued by our consumers in all our markets. It’s also true to say that in Asia a brand with over 90 years’ history might be trusted a little more than one just starting out. And finally I guess we have such a rich heritage, which makes discovering our brand and sharing the story so much fun.
Success in the Asian market requires an understanding of the nuances. How have you navigated this in your marketing?
The Asia market is changing faster than in the US and much faster than in Europe. The best way to keep in touch is to be there. Together with my team I spend a lot of time traveling the region and have done so for many years. We also took the decision to open an office in Shanghai and have team members based in Hong Kong and Singapore. Our marketing, in all territories, talks to the individual about the things that matter to them. In this way there is no difference in our approach in Asia or elsewhere. There are however some nuances around how people like to shop, their attitude to new brands, the journey they go on when discovering and researching, the touch points they prefer to access. For this our approach is entirely localized. One example is the question of trust. In the States you might argue that bigger brands are now less trusted than start-up founder-led mission brands. In Asia this is not yet the case—in fact it’s almost entirely opposite. The bigger the brand, the more it’s trusted—that’s why Lauder and L’Oréal have done so well. So we have to work hard to communicate our heritage, how long we’ve been around, and the size of our brand back home.
The Chinese market specifically is growing for Erno Laszlo. Would you share how you’ve managed to navigate this growing market?
I’m pleased to say that all our markets and all our channels have grown well this year. We entered China in 2015, through the cross-border platforms, as we believed this was the best way to build our reputation and revenues. We partnered with Tmall and set up an authorized Erno Laszlo brand shop. This was an important first step to establish our image, tone of voice, and pricing. We complemented this with publications on Little Red Book and a high level of influencer engagement through WeChat. Targeting the early adopters in this way was a successful cocktail and we shall continue to focus on building awareness through this model. There’s also a need for a domestic presence in stand-alone brand boutiques and department stores, and possibly a partnership with Sephora. We have been carefully assessing these channels over the last two years and there will be a step-change in our strategy during 2019.
The historically physical branded outlets have played an important role in the brand, beginning with Dr. Laszlo’s institute in Hungary followed by the first New York Institute in 1939 at 677 Fifth Avenue. Do you have any plans to get back into branded retail locations?
Yes we do. We believe in the physical touch and need for human interaction. Beauty is as much about how you feel on the inside as it is about how you look on the outside. As a brand empowering women to take control of their skin, we must extend our proposition to helping our consumers take control over their lives. This was a fundamental belief of Dr Laszlo. Sleep, food, travel, work, stress, exercise, and relationships are all related to feeling and looking your best. This can manifest in any number of ways for us to engage with our consumers. In 2012 we tried a new version of the Institute in Soho, New York, and while it was a great success as an Insta-worthy location, it didn’t deliver on other more human levels. As a trusted partner for life, we see our role as being present in the moments that matter, and to do this in a way that enhances a person’s way of living. Physical spaces, in whatever form they take, will allow us more freedom to address a much wider range of factors impacting on our consumers’ lives.
When you acquired the Erno Laszlo business it was losing money—now it’s profitable and growing. You bought Molton Brown out of receivership for £400,000 and sold it for £172 million. What is your secret to this success?
It’s an old cliché but it‘s true. You’re only as good as your team. At Molton Brown I had a great mentor and assembled a wonderful family who all shared the same vision that I had for the brand and the consumers we served. And at Erno Laszlo I’m blessed with another world-class team of professionals who also really get it. They’re passionate, creative, curious, fast moving, determined and not afraid to take risks. Perhaps I can take some credit for recruiting them, but our success is truly about how we all align around a shared vision. In this regard I’ve learned much from them about who and what we can be. The other and equally important rule that I have applied throughout my career is to “put the customer first.” The ways to market, channels, communication platforms, and even products and services may change, but if you maintain this philosophy at the core of your business you will eventually succeed. This also dictates the type of culture you want and need. If you make a conscious decision to build an organization around this mantra it governs which type of people you bring onboard and how you all behave.
In the new millennial world order of Instagram, you effectively navigate the current beauty landscape evolving the brand while keeping the heritage intact. How have you been successful at this while other legacy brands are struggling to be relevant?
I believe there are many brands with so much to offer millennials, it’s just difficult for them to ditch the corporate cloak and be themselves. Be more human and, in so doing, more relevant. At Laszlo we’ve had the freedom to take risks, fail, reset, and carry on until we found our way. In a fast-changing space there’s a need for constant trial and error. We want to inspire our friends and families to live better and more fulfilling lives. But what does that mean? It’s certainly not about piling up more products on shelves. It requires a brand to take a fresh look at the role it plays in a person’s life. You have to allow yourself to become subordinate to the consumer, set the brand ego to one side and accept that the consumer is going to invite you into their lives only if you’re able to demonstrate the value you can deliver. There’s no right of entry anymore, and your relationship can and will be ended if you don’t remain relevant to your host. You hear so much about being in the conversation, engaging with your audience, but sometimes I think brands forget that it takes two to communicate. For too long we were a dictator brand—now we’re having a two-way dialogue and from this we’re able to see a much clearer path forward. Our Erno Laszlo fans are our guides through the changing landscape, and our job is to make sure they care as much as we do about our future.
What are your plans for the next phase of the company?
We have a long to-do list. At the top is our move into the physical space, then our new innovations which offer our consumers a new take on beauty, and finally using our platform for more positive change in the world through both our “clean and sustainable by 2020” project and our mission to empower woman. To achieve these the most important priority is to continue fostering our spirit of adventure. We’ve worked hard to create the right culture and must protect it as we grow. It’s a great challenge to keep bringing in new talent while sustaining the ethos of the company. With the right people and a clear vision we really have no obstacles in delivering on our plans.
Where do you see the most growth? Where are the opportunities?
We see growth almost everywhere, through exploring partnerships with specialty retailers to moving back into bricks & mortar. We’re getting stronger in our home market with partners like Nordstrom and Holt Renfrew delivering wonderful increases. Our ernolaszlo.com channel is accelerating day by day, we’ve had a successful trial with QVC, our online sales in all markets are growing, and we’ve recently moved into travel retail with some extremely positive results. We see potential for innovation through products, a new take on services, and continued international expansion. We’re now five times bigger than we were in 2011, and at our current rate we should continue to double every 2-3 years.
What would Dr. Laszlo think of the brand today?
He was also a man who adored women, in the sense that he truly had their best interests at heart, and from his perspective I believe he would be pleased by the way we continue to conduct ourselves. Our executive team is weighted three to two in favor of women, the vast majority of my team is made up of ladies, and our brand continues to focus on empowering our consumers. The name Erno Laszlo is now recognized all over the world, which I have no doubt would make him proud. He was a pioneer so he’d be excited by where the brand is going, especially the new innovations we’re working on. I’m also told how Dr Laszlo would have disapproved of this or that. And I always respond that this is the nature of rebirth. If he’s the grandfather of modern skincare, then we’re the third generation reimagining and fashioning our future while being respectful of the DNA that spans our brand’s history.
Part 2- Erno Laszlo: Capturing the Chinese Market Beauty Prize
